Legal Fundamentals for Canadian Business Ch. 1 - 5

45
Pages

1435
Views

Unlock Document

School

Simon Fraser University

Department

Business Administration

Course

BUS 393

Professor

James Pflanz

Semester

Fall

Description

Legal Fundamentals for Canadian Business Study Notes
Chapter 1: The Canadian Legal System
What is law?
• Law: rules w/ penalties that are likely to be enforced either by the courts or
other agents of government
o Resolution of problems by courts/ other institutions are not an
indication of success; every effort should be made to avoid litigation
• Law and morality shouldn’t be confused – legal rules may express some
moral content, but it should not be assumed that obeying the law = acting
morally
o Laws are often passed for economic efficiency, political expediency,
historical reasons
o Law doesn’t define moral behaviour; business ppl should rise above
the minimum requirements for law
• Substantive law: rules determining behaviour
• Procedural law: concerned w/ how legal institutions work
• Public law: disputes involving the gov’t (including criminal law and gov’t
regulation)
o Criminal case usually offensive conduct, considered serious enough for
gov’t to get involved and punish wrongdoer
 Prosecution known as Crown, person defending known as
accused
• Private (civil) law: rules that enable an individual to sue a person who has
injured them
o Plaintiff – the person suing
o Defendant – person being sued
o When one party is dissatisfied w/ decision and appeals to higher court,
parties then known as appellant (party who lost and who is appealing,
may be either plaintiff or defendant) and respondent (usually trial
winner)
Sources of Law
• Each province given right to determine its own law w/ respect to matters
under its own jurisdiction
• Quebec: Civil Code
o French Civil Code based on Napoleonic Code, traced back to Romans
o Codifed body of rules stating general principles that are applied by
courts to problem before system
o Judge is not bound by precedent (following prior decided cases), but
must apply provisions of Code
• English-speaking Canada: Common Law
o Adopted from legal system used in England
o Instead of following a written code, judge looks to prior case law,
chooses particular case most closely resembling one at hand, and will
determine obligations of parties based on precedent
o Case involving same issue decided in court higher in judicial hierarchy
is binding precedent, so must be followed  Decisions from outside jurisdiction, including outside province,
and other countries (e.g. UK, US, Australia, New Zealand) may
be persuasive, but not binding
 Distinguishing cases: when judge prepares case report, a large
portion of decision is an explanation of why judge chose to
follow one precedent rather than another
 Stare decisis: system of determining law through following
precedent in the legal system
o Common law evolved from case decisions made in 3 common law
courts set up under king’s authority in Middle Ages in England (Court of
Kings Bench, Court of the Exchequer, Court of Common Pleas)
 As body of law grew, common law courts became
harsh/inflexible due to restrictions placed on king by nobles and
institutional inertia – led to having to petition the king if wanted
to seek a unique remedy
 Task of making orders overcoming individual injustices caused
by shortcomings passed from king to separate body called
Courts of Chancery
 Courts of Chancery and common law courts merged in 19 th
Century, but body of rules developed by Courts of Chancery
(Law of Equity) remained separate
o Common law was developed itself from different sources: canon law →
law of wills/estates, Roman law → property law, law merchant →
negotiable instruments
o English-speaking provinces adopted English legal systems at different
times, and each has added own decisions, creating unique body of
case law in each province
• Third body of law: gov’t statutes
o After English Civil War, principle of parliamentary supremacy
established that any legislation passed by Parliament overrides judge-
made law, in form of common law or equity
o New law usually takes form of statues enacted by fed/prov.
Legislatures
The Law in Canada
• British North America (BNA Act) – created Canada in 1867, united several
English colonies into one confederation, declared that Canada would have
constitution similar to UK
o UK has unwritten constitution – found in several proclamations,
statutes, traditions, judicial principles, including
 Rule of law: principle that all are subject to law and legal process
 Magna Carta: first royal proclamation of basic human rights
 Parliamentary supremacy: principle that everyone is subject to
laws made by Parliament
o BNA act has constitutional status – can’t be changed through
parliamentary enactment; can only be changed through process of
constitutional amendment
o Now known as Constitution Act (1867) – divides power b/w fed & prov
gov’ts  Parliamentary supremacy vs. 10 provincial legislative
assemblies – power is divided up in Sections 91 (fed – power to
make laws over e.g. money, banking, military, criminal law,
weights/measures) and 92 (prov – health, education, local
commerce
• Some overlap as sources of power rather than watertight
compartments
 Paramountcy – federal legislation takes precedence over
provincial in cases of conflict
• Legislation – how both fed/prov gov’ts make law
o Elected member (usually cabinet minister) from prov. Legislative
assembly or fed. Gov’t presents bill in house; process of introduction,
debate, amendment, approval (1 , 2 , 3 readings); presentation to
Queen’s representative (Governor General – fed, Lieutenant Governor –
prov) to receive royal assent; becomes law – known as act or statute
o Same process through Senate prior to royal assent at fed level
• Statutes may authorize cabinet minister or other official to create
sublegislation or regulations to accomplish objectives of statute
o If have been properly passed w/in authorization, have same legal
standing as statute
o E.g. Canadian Human Rights Act has 9 bodies of regulation – general
rules set out in statute, while regulations set out specific procedures to
be followed, penalties for violations, fees to be charge for services, etc.
The Constitution Act (1982) and the Charter of Rights and Freedoms
• Passage of Constitution Act (1982) in Canada and Canada Act in England cut
Canada’s ties w/ England, meaning English Parliament can no longer pass
legislation that affects Canada; however, ties to monarchy remain
• Canadian Charter of Rights and Freedoms is part of Constitution Act
o After WWII, increased in interest in human rights saw all Canadian
provinces and fed gov’t establish regulatory bodies to ensure human
rights were being protected
o Specific laws vary among provinces and many not include same
grounds but all have established strong enforcement bodies – power to
hear complaints, gather information, hold hearings, provide remedies
o None of statutes had power to remedy discrimination by gov’t
(parliamentary supremacy holds that the supreme law-making body is
fed Parliament)
o Charter solves this problem – all constitutional provisions are supreme
law of Canada, meaning that no gov’ts can change provisions w/o
going through amendment process
o However, some limitations built into Charter give back gov’t some
power that Charter takes away
 Section 1 – allows for reasonable exceptions, e.g. removing
mobility rights of prisoners, person being held liable for
fraud/defamation against free speech
 Section 33 – “notwithstanding” clause, allows for opting out, e.g.
Loi 101 in Quebec
o Section 2 – protection of basic or fundamental freedoms:
speech/religion/press/association o Sections 3-5 – democratic rights – right to vote, run in an election,
election being held every 5 years
o Section 6 – mobility rights: right to live/work in any part of Canada,
enter and leave Canada
o Sections 7-14 – legal rights: rights to life, liberty, security of person,
tried in reasonable time, have a lower, not to incriminate yourself, not
to be exposed to any unreasonable search and seizure
o Section 15 – equality rights
o Section 23 – minority language education rights
o Aboriginal rights that contravene Charter provisions are not affected,
are preserved
o Charter’s provisions only apply to relations w/ gov’t; legislation passed
by all lvls of gov’t and conduct of officials must comply w/ provisions of
the Charter
The Courts
• Under Constitution Act, court structure is left to provinces – some variation, bt
generally similar
• Provincial (lower-lvl) courts: civil and criminal matters
o Small-claims court – civil actions where one person sues another for
small amounts of money (up to $50K)
o Youth courts
o Criminal courts – less serious criminal offences
o Family courts – family law matters (e.g. division of assets, awarding
maintenance, custody of children)
o Specialized courts – e.g. drug-related offenses, domestic violence,
mental health, community courts
o Superior trial courts (Supreme Court, Court of Queen’s Bench, Ontario:
Superior Court of Justice) – highest provincial trial courts, dealing w/ all
serious civil and criminal courts; usually deal w/ provincial statutory
offences and limited civil jurisdiction
o Court of appeal – highest provincial courts; only deal w/ appeals from
lower courts and some gov’t regulatory bodies; 3 judges preside over
cases, instead of jury
 Juries limited to trial level, rare in civil cases (except for
personal-injury cases under tort law), but guaranteed under
Charter for criminal cases
 Function: to hear evidence, decide questions of fact (what
happened that gave rise to action); questions of law (what legal
obligations are of parties or legal rules to be applied) are left to
judge
 If only judge presides, deals w/ both questions of fact and law
• Federal courts:
o Supreme Court of Canada
 Court of last resort for Cdns, located in Ottawa
 9 judges are chosen from around the country, appointed by
governor general upon recommendation of PM and cabinet  Hears appeals from all provincial appeals court (can’t directly
appeal to SCC) – will decide on which cases are the most
important for Cdns
 7 of 9 judges usually sit to hear cases, and may sometimes hear
references (questions involving serious legal issues normally
some urgency), directed by PM
o Federal courts – trial and appeal divisions
 Matters that fall w/in federal jurisdiction, matters from federal
tax court, military courts, other fed gov’t regulatory bodies
The Litigation Process
• Civil action: one person (plaintiff) sues another (defendant)
o Each step in complex process designed to uncover info, so parties will
be encouraged to settle w/o trial
o Prov. Courts only hear matters that have taken place in, or are closely
connect to, area of jurisdiction
• Self-representation – permissible both in civil and criminal courts
o Usually the case in small-claims courts, but in more serious cases,
lawyers (US: attorneys, UK: barristers (trial lawyers), solicitors (legal
transactions) usually represent parties
 Notary Publics and Paralegals provide some legal services
• Civil action process
o Action must commence w/in a time limit (limitation period) specified in
statute – varies w/ type of action being sought
o Once questions of jurisdiction/time limits are decided, plaintiff initiates
action by issuing writ of summons (description of nature of complaint
and address where docs related to case can be served), registering it,
and serving to defendant
o Defendant files an appearance at same court registry – indication that
matter will be disputed
 Default judgment – when defendant fails to file appearance,
plaintiff can proceed to judgment w/o any further notification to
defendant
o Plaintiff issues statement of claim (summary of allegations supporting
cause of action [summary of what plaintiff says happened] and nature
of legal claim, indication of remedy requested, where damages are
claimed, specific amount sought
 Sometimes included in writ of summons
 Ontario – notice of action commences action (including
statement of claim)
o Defendant responds w/ statement of defense (states what is agreed
upon and what is disputed in statement of claim); can also issue a
counterclaim (initiates counteraction on defendant’s behalf)
 Docs aka. pleadings
o Discovery process: each party looks at and copies documents from
other side, examination under oath by other side’s lawyer
o Offers may be presented b/w parties to encourage parties to settle
prior to trial; if offer isn’t accepted and judgment is less favourable
than offer, party refusing offer may pay penalty in higher costs  Pre-trial proceedings can cause delays and frustrate parties
 Reforms have been introduce to expedite the process – reducing
scope of discovery, mandatory use of affidavits instead of direct
testimony, elimination of discovery, mandatory pre-trial
mediation, case mgmt by a judge, etc.
The Trial and Judgment
• Trial begins w/ opening statement by lawyer for plaintiff, then witnesses
called by plaintiff to answer questions by plaintiff’s lawyer (direct
examination)
• Cross-examination: as each witness testifies, defendant’s lawyer has
opportunity to ask their own questions
o Questions are often broader than in direct examination
• Defendant responds by calling their own witnesses w/ direct and cross-
examination from lawyers from both parties
• Both lawyers summarize cases and make their arguments
• Plaintiffs much establish claim on “balance of probabilities” – judge needs
only to be satisfied that plaintiff's position is more correct than defendant's
• criminal cases: prosecution must prove "beyond reasonable doubt" guilt of
the accused
o I.e. even if judge thinks accused is guilty, there must be verdict of not
guilty if there is another reasonable explanation
• once judgment for liability is passed in civil action, defendant usually has to
pay damages (sum of money designed to compensate losses incurred) to
plaintiff
o special damages: can be accurately calculated (e.g. medical expenses,
lost wages)
o General damages: can't be accurately calculated
 e.g. loss of future wages, pain and suffering (limitations on
availability set by SCC)
o punitive damages: awarded when conduct in question was deliberate,
object to punish wrongdoer
• other remedies:
o injunction: order to stop offending conduct, or may be to order parties
to do something, eg. back to work order
 Interim/interlocutory given before ultimate determination of
matter at trial
 Mareva is court order freezing assets of defendant to ensure
they are available to satisfy an eventual judgment at trial
 Anton Piller order: similar to Mareva - authorizes one party w/o
warning to the other to search and seize evidence including
assets and documents to make sure they aren't destroyed
o specific performance: order for one contracting party to fulfill terms of
agreement
o accounting: defendant must pay over any profits made because of
misdeed
o Order for costs (aka. party and party costs): requires that losing party
pay a substantial amount to compensate winner for trial expenses • Once damages have been settled, defendant is known as judgment debtor,
and plaintiff the judgment creditor
• JC must take extra steps to ensure payment is collected, e.g. post-trial
hearing to identify JD's assets (e.g. bank accounts, wages, cars/boats, real
estate/land)
• Contempt of court: when defendant fails to comply w/ specific conduct
ordered or defendant tries to avoid paying, may result in stiff fines and/or
imprisonment
• Risk must be taken into consideration in whether or not to sue, as court
litigation is very expensive, and other party may not be able to pay
Alternate Dispute Resolution (ADR)
• ADR: alternative solutions to litigation process; can avoid delay, expense lost
productivity, publicity associated w/ litigation process
• Negotiation
o directly w/ each other, or through lawyers, to reach settlement
o resolution is quick and cheap
o if have some goodwill and parties are willing to cooperate and
compromise, best choice for resolving disputes
• Mediation
o process where 3rd party acts as go-between or facilitator and assists
parties to resolve dispute
o mediator communicates w/ both parties, tries to find some common
ground b/w them (e.g. suggestions)
o up to parties themselves to make decisions, not mediator - more likely
for parties to live up to obligations
o if fail to live up to obligations, terms of settlement will be influential in
court hearing
o if settlement is not reached, proceedings are kept confidential - doesn't
weaken party's position
o may be required in some cases, e.g. collective bargaining, as part of
pre-trial litigation proceedings
o Pros: convenient, inexpensive, private, allows parties to resume
relationship
• Arbitration
o decision-making is surrendered to arbitrator who is selected by both
parties - often set out in initial contract b/w parties
o Panel of 3 may be chosen: 1 by each party, and a 3rd neutral person
o parties agree to be bound by decision, but can place limitations of
scope of decision and what remedies can be imposed
o Arbitrators are usually very experienced, and w/ power to make
binding decision, make them very effective
o Required in some situations, e.g. collective bargaining
o Increasingly common to blend mediation and arbitration (Med-Arb) - 2-
step process, w/ attempt at mediation first, then arbitrating if
mediation doesn't work
o Pros of ADR
 flexibility - parties are free to tailor dispute-resolution process to
suit business needs  reduces costs, should be included in risk-avoidance strategy
Administrative Law
• ...
Requirement of Authority
• Statute authorizing a process or regulations, or appointed decision-maker,
must deal w/in constitutionally-mandated area and mustn't infringe on
Charter rights; will be considered void otherwise
• Statutes must be provided in writing - if error is made in documentation of
regulatory process, law may be overturned
Procedural Fairness
• Decision-making process must comply w/ principles of procedural fairness
• Fair hearing: person appearing before hearing/tribunal must receive
reasonable notice of hearing and be made aware of what the hearing is about
so can prepare appropriate response; person must be given opportunity to
speak before decision is made; ppl making decision must be present to hear
all evidence and not be biased or personal interest; courts will review
decision when it is unreasonable, etc.
• Privative clauses: added to insulate tribunal decisions from judicial review, so
as to hvoid having statute's terms and processes challenged
• Tribunals and regulatory boards usually made up of experts, so decisions can
be made more quickly and cost-effectively than courts
• Courts designed to rarely interfere w/ decisions - grounds reduced to
"correctness" (above process, tribunal having authority and fairness of
process) and "reasonableness" (board has several choices but choices have
to reasonable)
Criminal Law
• State prosecutes the accused in criminal cases, unlike civil law, where an
injured party sues party causing the injury seeking compensation or other
remedy
• Sometimes criminal and civil cases arise from the same incident
• Power to make criminal law rests w/ fed gov't, but provinces have power to
create/enforce statutes, violations of which can be significant
• Hence, little difference b/w regulatory offences and violations of criminal law
• Prosecutor must establish "beyond a reasonable doubt" that accused is guilty
of offence; not enough to show that offensive conduct has taken place, need
to prove that action was intentional (not intention to commit a crime or harm
another)
o Defense needs to show that no intention was present - insanity is a
common defense (but intoxication, ignoring the law don't count)
o Strict liability offences: when only fines levied, may be sufficient to
prove that offensive conduct took place; only defence available is that
accused acted w/ due diligence (established if accused has taken
reasonable measures to ensure offensive conduct hasn't taken place,
i.e. training of employees, establishment of procedures and
safeguards)
• Police have broader powers to arrest, and have right to make a search
• Decision to arrest usually follows investigation, police file complaint setting
out allegations and obtain arrest warrant from justice of the peace/judge • Justice may also issue summons to appear - accused is required to present
themselves before judge in specified time; if arrested, accused has to be
presented before judge 2/in 24 hours
• Summary conviction offenses - minor offenses, lesser penalties (usually up to
jail term of max 2 years), usually involve exchange of information and
negotiation by prosecutor and defence b/w appearance and trial
• Indictable offenses - more serious penalties, involve heavy fines and up to life
in prison, depending, a more involved and lengthy process (preliminary
hearing before trial)
• Plea-bargaining: involves giving accused opportunity to plead guilty to a
lesser offense; a common aspect of criminal process
o advantages: serving justice, ensuring conviction, avoiding costs and
uncertainty of a trial
• Process
o prosecutor presents evidence against accused, who then presents
defence
o if have jury, will hear evidence and receive instructions from judge as
to law, then decides guilt; if can't agree, new trial may be ordered
o If just a judge, will decide guilt/innocence and impose sentence w/in
sanctions of Criminal Code (depending on seriousness of offence)
o judge may make other orders, e.g. confiscation of proceeds of crime,
requiring payment, suspended sentence, absolute discharge
• some offences don't involve direct commission of actual crime (e.g. aid in
commission of crime, accessory to crime, counsel commission of crime,
conspiracy)
• individuals/corporations doing business in other countries are subject to legal
systems in those jurisdictions; and due to int'l treaties, conventions ,etc.
crimes done abroad may have legal consequences locally
Chapter 2: Torts and Professional Liability
• Personal Liability - one person is held accountable when wrongful conduct
causes injury/loss to another
• Tort: a private wrong; i.e. if conduct causes injury, injured person can sue
wrongdoer in private or civil action
• Tort vs. criminal conduct - crime is offensive conduct considered serious
enough for state to get involved and prosecute, while tort is civil wrong in
that injured party not the state, is bringing the action, and
penalties/procedures/standards are different
o although some cases may result in both criminal and civil cases
o Vicarious liability - an employer is vicariously liable (responsible) for all
torts committed by employees in the course o their employment
Intentional Torts
Assault and Battery
• Forms of trespass to person – intentional physical interference w/ another
o Battery – actual physical contact; usually includes assault, so common
practice to use term “assault” to cover situations where physical
contact is involved o Assault – threat to harm another; threat of physical contact must be
immediate and physically possible to carry out, need not be harmful,
just unwanted
o Under Criminal Code, term “assault” includes physical contact that in
tort law would be referred to as “battery”
• Defences
o Consent – valid defence to claim of assault/battery
 Medical treatment or other conduct can go no further than
informed consent allows → if w/in parameters, appropriate and
not actionable against
 Some physical contact falls w/in consent, e.g. in sports, but not
intentional extreme contact
o Self-defence – when attacked , victim can use reasonable force in
response, but can’t be unrestrained violence (i.e. only as much force is
necessary to fend off attack)
 Must be in response to immediate threat, not one that has
passed, otherwise considered as revenge
 Can also be used to e.g. accomplish justified arrest, defend
property
 Doesn’t count if e.g. you are verbally insulted and you respond
w/ physical violence
False Imprisonment
• When someone is suspected of inappropriate conducted and restrained
(counts as imprisonment); when done improperly or w/o authority, considered
actionable, a form of trespass
o Doesn’t need to involve physical contact, e.g. if someone submits to
following another person’s orders
• However, when a person has committed a crime for which he can be
arrested, and is caught, anyone can arrest them (but police and other
security officials have broader powers of arrest)
• Proper training of employees is essential to reduce rise of false imprisonment
allegations, potential criminal charges
Trespass
• Trespass of land – when someone comes onto another’s land w/o permission
or authority
o Trespass can be unintentional (e.g. if person doesn’t realize), but e.g.
postman delivering mail wouldn’t count as trespass
o Trespass can also be indirect (e.g. throwing smt onto land, permanent
incursion, overstaying welcome, causing destruction)
• Proprietor is allowed to eject trespasser using reasonable force (i.e. no more
than necessary)
• Can be considered criminal e.g. loitering on another person’s property at
night; ejecting by reasonable force and defence of property are allowed
o If trespasser refuses, considered assault
• Trespassers are responsible for any damage caused on property, but no
damage is necessary for trespass to be actionable
o In cases of permanent trespass, remedy might be damages or
injunction Nuisance
• Private nuisance – one person using property in such a way that interferes w/
neighbour’s of property, e.g. fumes, odours, noise, water
• Remedies – damages, injunction
o Activity complained must be inappropriate use of that property; e.g.
noise from nearby farms or industrial plants don’t count
• Interference must be reasonably foreseeable, and offender should have
anticipated result
Defamation
• Involves false statements about someone to their detriment; mustn’t just
reflect badly on person but also clearly refer to person suing (i.e be specific,
not general)
• Products/businesses can also be defamed – e.g. circulating rumours about a
brand of beer being contaminated
• Needs to be published to be actionable, i.e. be heard or read by a third party
o Libel – written defamation; treated more seriously than slander (can do
more damage), easier to prove
o Slander – verbal defamation; Monetary loss needs to be shown
o In most jurisdictions, broadcasted defamation is considered libel rather
than slander
• Innuendo – spreading rumours about relationship status of people; can be
actionable, even if in error
• Mistake is not considered a defence
• Defences
o Justification – if statement is substantially true, presents effective
defence
 Defendant needs to prove statement true rather than plaintiff
proving it false
 Actual msg being communicated must be true, not intended
idea of communication
o Absolute privilege – comments on floor of legislature, senior gov’t
committees, in trial proceedings; not actionable
 Debate and free speech too important to be hindered by threat
of litigation in these circumstances
o Qualified privilege – limited protection of derogatory statements made
pursuant to duty
 Statements regarding employment (e.g. employee evaluations,
statements given to police)
 Also given to some matters of mutual interest, esp. professional
associations (e.g. lawyers, doctors, accountants)
 Cannot sue if statement was made under assumption it was
true, made w/o malice, and didn’t communicate to anyone who
didn’t need to know
o Fair comment – entitlement to have/express opinions on matters of
public interest; used mostly by media
 As long as expression of opinion is commentary based on true
facts, and as long as it is possible conclusion based on public
facts and stated w/o malice, it is protected  If statements aren’t true, then are actionable
 Also protects e.g. political cartoons that get msg across by
exaggeration
o Responsible Communication – as long as publication is on matter of
public interest, is reasonable under circumstances, and there are
diligent attempts to verify facts, publishers are protected (even if
statements are false and derogatory)
 SCC decision to balance freedom of speech and protection of
reputation
o Legislation also limits exposure of comm media by limiting amount of
damages that can be claimed by victim if an appropriate apology is
published
o Defamatory libel – if published words injure someone’s reputation by
“exposing them to hatred, contempt, or ridicule”, can be considered a
criminal offence
 Extortion/threat by/of defamatory libel is also a criminal offence
 Publishers also liable unless they can show they had no
knowledge of the inclusion of the offending words
Negligence
• Inadvertent or careless conduct causing injury or loss to another; involves
failure of one person to live up to standard of care required in their dealings
to others
o “careless” – failure to live up to that required standard of care
• Duty of care – required only to limited classes/groups of ppl determined by
legal test and social policy
o If litigation, plaintiff must show that conduct fell below required
standard/level of care; must be determined that there was some sort
of injury or loss caused by alleged conduct
• Reasonable person – court asks: what would a reasonable, objective
bystander do in the same circumstances?
o Requires behaviour that’s higher than average but less than perfect;
standard behaviour expected from a prudent person being careful;
average isn’t good enough
Duty of Care
• Donoghue vs. Stevenson case(Scotland, 1930s) – Donoghue went to café w/ a
friend, who bought her a ginger beer float; Donoghue found out that bottle
contained rotting snail, and became very ill; couldn’t sue café b/c friend
bought float for her, so sued bottler (Stevenson) on tort of negligence – did
Stevenson owe a duty to be careful to Donoghue?
• Established reasonable foreseeability test – we owe a duty to be careful to
anyone we can reasonable foresee (anticipate) might be harmed by a product
o Has become very important in development of law in negligence;
applies in normal negligence case
o SCC ruled that in new cases, two-step Anns case applies
• Ann case – lessees of apartments (under 999-year leases) sued Merton
London borough Council for failure to ensure that failed foundation had been
properly constructed; House of Lords had to establish whether city owed
them a duty of care; Lord Wilberforce found it did, two-step process
established to determine duty • Anns case test
o Determine whether there is a degree of proximity/neighbourhood b/w
parties, such hat one person should have realized that their conduct
placed victim at risk; was injury or damage reasonably foreseeable?
 Proximity – not just what was reasonably foreseeable, but also
what was just and fair in circumstances w/ result that there are
even fewer findings of duty in new and unique situations
o Is there any reason not to impose duty, reduce scope of duty, limit
class to whom duty is owed, or should damages awarded be reduced?
 Allows courts to modify nature of duty where circumstances
warrant based on social policy
• Recent expansions:
o commercial restaurants/pubs liable to patrons who drink too much and
then are injured
 not just to customers themselves but also to others injured
through intoxicated conduct
 also extends to employers who serve alcohol to employees at
office parties, etc.
Standard of Care
• was there a failure to live up to appropriate standard of care?
• Generally, law doesn’t impose a duty to act and so omission (nonfeasance)
isn’t usually actionable, unless there is some special relationship imposing a
duty (e.g. lifeguard, guardian; duty to warn of some danger)
• In cases where inappropriate conduct/malfeasance is involved, how careful
does a person have to be?
• Person is required to live up to what is expected of a reasonable person in the
same circumstances – as long as standard is maintained/surpassed, no
negligence has taken place
o 2 ndapplication of “reasonable person test”, most significant application
in Cdn legal system
o Several considerations taken into account: risk, cost, potential loss
 In cases of high risk w/ great potential for damage, duty to be
careful is very high
• Strict liability – liability may be imposed in rare circumstances where smb
brings smt dangerous on their property and it escapes, causing injury to a
neighbor, even when owner of property hasn’t caused escape and has taken
all reasonable steps to avoid it
• Expertise – professionals (e.g. doctors, accountants, engineers) are expected
to have a certain lvl of expertise (i.e. skills and abilities associated w/
profession) and exercise it in a reasonable manner
o E.g. doctor who misdiagnoses illness may be liable for negligence
• In determining what caused loss/injury, Cdn courts look at circumstantial
evidence, and if strong enough, can conclude that presumption of negligence
has been established; then, up to defendant to produce evidence that they
weren’t negligent, otherwise presumption is confirmed and liability
determined
o Historically, treated under principle of res ipsa loquitur, but SCC
decided a more flexible principle of circumstantial evidence was better • Traditionally, special rules applied in some unique situations
o E.g. occupiers had a particular responsibility to ppl using land and
premises, depending on status – had to protect invitee from any
unusual danger; licensees had to be warned of any hidden danger
o Most jurisdictions have enacted occupier’s liability acts – no more
distinction b/w invitees and licensees; occupiers need to take
reasonable steps to protect all visitors and property, and obligations to
trespassers (except children – usually greater) are minimal
• Special statutory standards over-ride common law; standard of care required
of certain classes changed by legislation
o E.g. innkeepers to guests and common carriers to customers have
been modified by statute
o Not every time a statue imposes a duty on smb is a new category of
tort created
o Insurance is a way of avoiding risks associated w/ tort liability – in
many jurisdictions, certain times of insurance coverage is mandatory
Causation and Damage
• Plaintiff must demonstrate causation (i.e. that conduct complained of was
cause of injury or damage) in order to succeed in negligence action
o w/ intentional torts, commission of tort is enough to warrant payment;
tort need not necessarily have happened
o w/ negligence, there needs to be some sort of resulting injury/damage
before compensation can be sought
• i.e. duty owed → duty breached → causation → loss → no defences
Defences
• Contributory negligence – where plaintiff/victim was also negligent, court will
apportion the damages
o Traditionally, if person suing also contributed to loss, would receive no
compensation; but has been modified by common law and legislation
o E.g. when both parties are at fault in a car accident
o i.e. when present, court reduces amount of compensation paid to
victim of negligence when victim’s own carelessness contributed to
loss
• Voluntary assumption of risk – where plaintiff has voluntarily put themselves
in danger (thus has assumed legal and physical risk), there will be a complete
bar to recovery (i.e. they are disqualified from suing for injury or loss)
o Defendant must not only show that injured party voluntarily put
themselves in danger, but also that they did it in such a way as to
absolve defendant of any legal responsibility
o Courts may apportion losses depending on percentage of fault
o Rescuers who put themselves in dangerous situations are treated
differently
• Remoteness – where causal cxn is indirect or consequences are out of
proportion to expectations, liability may be reduced
o Test used is same reasonable foreseeability test used to determine
duty of care, but applied to foreseeability of injury generally
o Mustapha case – man changing a water bottle discovered fly inside,
causing him to develop a phobia to drinking water  Product-liability case – duty of care was clearly established on
manufacturer based on reasonable foreseeability best
 Court of Appeal overturned lower court decision to award
$300K+ in damages, but SCC dismissed appeal – there was duty
to be careful and ther was breach, damages suffered were result
of that failure, and injuries in question were too remote and
therefore where was no liability
 Legal causation will only be established when there is
reasonable foreseeability of such an injury to a person of
“ordinary fortitude”
o There must be sufficient causal cxn b/w conduct complained of and
resulting injury; if considered too remote or too indirect, requirement
of causation will not be met and no liability imposed
o Once cxn is found, when personal injury is involved, we take our
victims the way we find them; once an injury is foreseeable, plaintiff
will be liable even if degree of injury is unusual
 Thin skull rule – which makes the tortfeasor liable for the
plaintiff’s injuries even if the injuries are unexpectedly severe
owing to a pre-existing condition. The tortfeasor must take his or
her victim as the tortfeasor finds the victim, and is therefore
liable even though the plaintiff’s losses are more dramatic than
they would be for the average person.
 Crumbling skull rule – simply recognizes that the pre-existing
condition was inherent in the plaintiff’s “original position”. The
defendant need not put the plaintiff in a position better than his
or her original position. The defendant is liable for the injuries
caused, even if they are extreme, but need not compensate the
plaintiff for any debilitating effects of the pre-existing condition
which the plaintiff would have experienced anyway. The
defendant is liable for the additional damage but not the pre-
existing damage.
o In contract law, there is a duty to mitigate damages in a negligence
action, i.e. plaintiff has to take all reasonable steps to keep damages
as low as possible
 Failure to do so means that damages will be reduced to amount
they would have received had they been mitigated
 In potentially dangerous situations, contract often includes
provision restricting any such action, or required to sign a
release
Product Liability
• If a product injures a person, there is a choice – purchaser can sue seller of
product for breach of contract and/or sue manufacturer for negligence
o Action in contract has distinct advantage of imposing strict liability
where product was defective and caused injury; no need to prove fault
on part of defendant
• Privity of contract – principle that only parties to a contract have obligations
under it
o If no contractual relation b/w parties, only option is to sue for
negligence – fault must be demonstrated in addition to showing that defective product caused the injury; i.e. plaintiff must show that
defendant was negligent (failed to live up to standard of a reasonable
manufacturer) – hard to do
o If presumption of negligence is established through circumstantial
evidence, manufacturer must show that it did everything reasonable to
ensure that this type of injury wouldn’t happen
 Responsibility is imposed even where unusual occupation or
condition causes victim greater loss than normal
o Once established that product was defective, caused injury and
manufacturer was careless, liability will be imposed
• Class-action suits are often used when products cause injuries to many
people as a result of same complaint against manufacturer
• Strict liability – in US, if a person can show that product was defective and it
caused injury, enough to establish liability
o Some Cdn jurisdictions have moved away from this approach; some
impose contractual warranties on manufacturer guaranteeing
fitness/quality – eliminates requirement that victim be purchaser of
product
o Where contractual liability can be established, no need to show
existence of duty/failure to live up to standard of reasonable person
Professional Liability
• Professionals have direct contractual liability to clients and are liable, w/o
showing fault, when they make errors that cause loss to clients
• If injuries extend to 3 parties, courts must establish how far they want to
extend professional liability
o 1965 Haig vs. Bamford case (involving misleading financial statements,
leading to injury of investors) – SCC didn’t adopt reasonable
foreseeability test, but required accountants have knowledge that
investors would rely on misleading statements
o Solution was to supplement reasonable foreseeability w/ Cdn
application of Anns case – SCC ruled that duty was owed when
accountants knew that investors would use statements, but no duty
existed to investors when they were prepared just for shareholders to
evaluate mgmt.
• Hercules Case – SCC applied Anns case test and held that there was good
policy reason to deny existence of duty, reluctant to expose accountants to
open-ended liability
o Duty may now be modified or eliminated based on policy
considerations
o Court was unwilling to expose professionals to unlimited liability
• Now, professional liability to clients is based on contract, tort and Anns case
test
o Once reasonable foreseeability established, court applies send half of
Anns case test and impose limits based on basis of social policy
considerations
o Professionals must remember that they are not only required to be
careful in dealings, but also may be held responsible for damages
conducted w/ indirect parties
• Need to determine standard of care o General principle: professional must live to standard of a reasonable
person in circumstances; i.e. requirement to have lvl of skill/expertise
expected of a nomal person in that profession, and to practice skill in
reasonable manner
 Assumption that professionals will act reasonably as they
practice
o However, if court can be convinced that standard practice is not up to
standard, liability for negligence will still be imposed
 If victim can establish duty owed (satisfying both steps of Anns
case test), liability will be imposed
o Fiduciary duty also required – duty to act in best interests of their
clients, even to point of putting clients’ interests ahead of their own;
involves loyalty and good faith
 Confidentiality applies; conflicting interests must be disclosed
and professional must step back from any decision-making
process where conflict exists
 Higher standard of conduct required of experts
o Funds from transactions involving clients must be kept separate from
professional’s other moneys and can only be used for client’s business;
breach of trust can lead to criminal penalties, disqualification from
practice
 standard practice may not be good enough
o Professionals often answerable to professional associations that
authorize practice
 Powers generally have authority to determine who can practice,
set standard of education/skills/ethics required
 Bodies can also discipline members/limit rights to
practice/disqualify them; subject to law and must adhere to
human rights legislation and “due process”
o Risks associated w/ tort liability can be avoided/reduced through
insurance
 Liability (aka. errors and omissions) insurance protects
professionals and others when they make mistakes that cause
loss to clients
 They compensate victim for injury and provide legal
representation to cover insured during process, but don’t usually
protect where wrongful act was deliberate or there was fraud
 Increasing cost of premiums is a problem, esp. as courts are
awarding larger awards
 Some professional associations require insurance coverage as a
condition of practice
o Negligence can be considered a crime
 if person performing duty does/neglects to do smt “showing
wanton or reckless disregard for the lives or safety of other
persons” (e.g. failure to ensure adequate safety standards) –
liable for up to 14 years in prison for bodily harm, life in event of
death
 Criminal penalties can be imposed if acts are deliberate
Other Business Torts • Fraud/deceit – when smb intentionally misleads another, cheating them out of
money or gaining some other advantage
• Injurious falsehood/product defamation – defamation where false info is
spread to harm sales of a particular product
• Inducing breach of contract – when one person persuades another to breach
a contract w/ third person
o Usually when one employer “steals” an employee from another
employer by persuading employee to break contract w/ first employer
o Can also happen when one person persuades a potential
client/customer to break contract w/ competitor to deal with business
• Passing off – intellectual property issue; when one business tries to take
advantage of another by misleading ppl to thinking that they are associated
w/ or are part of that reputable business, when in fact they are not
• Trespass to chattels – when smb damages or interferes w/ some item of
personal property (e.g. slashing a tire)
• Conversion – broader than theft; where one person intentionally deprives
another of possession and use of personal property (e.g. taking a car w/o
authority, taking control of another’s property by taking it as their own/hiding
it/moving it/destroying it/locking it up)
• Statutory obligations require a duty to maintain a certain standard of
conduct, but don’t create tort liability unless stated in statute
o Usually enforceable by special board of commission
o Some privacy legislation imposes obligations on business in terms of
information – actionable
• Most effective method of avoiding litigation is good understanding of law and
vigilant effort to ensure that situations leading up to rise of tort action
doesn’t occur (e.g. careful selection of employees, training/safety programs,
audits)
• SLAPPs (strategic lawsuits against public participation) – when companies
that are threatened w/ legal action launch their own lawsuits w/ object of
reducing criticism and disabling potential plaintiffs
o May be effective, but ethics are questionable and there are efforts in
Canada to curb use through legislation, preventing what is considered
abuse of the legal system
Chapter 3: Formation of Contracts
• Contract – a voluntary exchange of promises or commitments b/w parties that
are legally enforceable in the courts
o Can create/modify/remove obligations and responsibilities
• Contract law developed in courts, and there has been little statutory
interference w/ common law fundamentals
• Business ppl need to be very careful to fully understand what they are
agreeing to do; most business transactions involve risks so it’s common for
exemption clauses to reduce risk significantly
Consensus
• Consensus usually achieve through process of offer and acceptance,
resulting in shared commitment when both parties clearly understand
obligations and responsibilities to be assumed – i.e. consensus reached
through bargaining; offer and acceptance leads to agreement o Bargaining process includes enticements, offers, questions, arguments
and counter-offers until agreement is reached, and valid offer is
accepted
o Courts usually judge consensus based on subsequent behaviour of
parties
o consensus can still be there even if no specific offer or acceptance is
identified, nor is it necessary for both parties to have a complete
understanding of what they have agreed to
 Only requirement is that terms are clear and unambiguous
o Contract law – courts will give effect to reasonable expectations of
parties, but an agreement must be present
 Courts don’t bargain for parties, interprets/enforces mistakes in
terms rather than finding no agreement
• Offer – tentative promise/commitment that contains essential terms of
anticipated contract
o Other party need only indicate willingness to be found by state terms
(accept) to create binding agreement
o Invitations to treat - pre-contract communications that don't create
contractual obligations, sometimes confused w/ offers
 no legal effect in contract law - actual offer that leads to
acceptance and eventual contract depends on subsequent
communications b/w parties
o offer must contain all important terms of contract (at minimum,
identiication of parties to agreement, subject matter, price to be paid)
o all important terms of agreement must be set out or be implied in
agreement
o offer/contract are not required, by law, to be in writing, although it's a
good idea
 possible for contract to be implied from circumstances
o to reach consensus, offer must be commnicated before it can be
accepted; offeree can't accept an offer that they don't know about
o potential communications problems when offeror wants to include
exemption clause that restricts liability in transaction - must be
brought to other party's attention at the time contract is created
 will not be considered part of the contract if communicated after
the fact
• End of an offer
o after a specific time, as stated by offeror
o if no time specificed, offer will end after a reasonable time (this varies
with context)
o automatically ends w/ death or insanity of offeror
o upon recovation by offeror - no legal obligation, so offeror is free to
withdraw offer any time before acceptance
 as long as revocation is communicated prior to acceptance,
withdrawal stands
o upon rejection of offer by offeree - offeree can't later change their
mind and accept, and nold offeror to deal o upon counter-offer by offeror - if counter-offer rejected, can't force
contract by accepting original offer
o selling subject matter of offer to someone else doesn't automatically
end offer; considered revocation of offer by conduct and would have no
effect, unless other party learned of sale before accepting
 there can be no meeting of minds when offeree knows that
offeror has changed their mind before acceptance is made
o right of offeror to change mind and revoke offer anytime waned is
often impediment to business
o Option agreement - a contract where offer can't be revoked and must
remain open until expiration at a specified time
 Offeror now bound to separate contract to hold contract open,
while offeree is free to accept or reject original offer – gives
offeree time for consideration w/o worrying about revocation or
deal being accepted by someone else
 Similar in tendering process – company puts out request for bids
on the job that requires service from others
• Once bid is submitted, special contractual relationship is
created (tender agreement) which makes party
submitting bid commit to certain rules as laid out in
tender (e.g. disclosing all relevant info, accepting only
bids compliant w/ terms of tender, not accept bids
submitted after deadline, to accept most competitive bid,
etc.)
• After bidding party submits bid, accepting that subsidiary
offer binding both parties to rules set out in bidding
process and resulting obligations are legally enforceable;
both parties are bound by subsidiary contract rules
• Standard Form Contracts
o Create a “take it or leave it” approach; remove choice to bargain
 One-sided terms included, e.g. exemption clauses that favour
the offeror
 Any ambiguity in term favouring just one party is interpreted in
favour of other party
 However, binding as w/ any other contract once accepted
o Standard phrases used even when parties are bargaining equally;
interpretation of legal agreement can be certain from outset (esp.
when lawyers create legal docs)
 Any time a common type of transaction is involved, there will be
a standard form of agreement used by lawyers, e.g. insurance,
purchase of property
Acceptance
• Once valid offer is made, tentative commitment bound by offeror, which
requires similar commitment by offeree for contract be formed → acceptance
is a commitment by offeree to terms of offer
o Offeree’s commitment is usually an indication of willingness to abide
by terms • Acceptance must be complete and unconditional → offeree can’t pick and
choose which part to accept unless that was intention of offeror, i.e. all or
nothing; conditional acceptance doesn’t apply either
• General rule: acceptance is effective when and where communicated → no
contract until offeror is notified of offeree’s acceptance
o Where contract is formed can be important consideration in
determining what court has jurisdiction and which laws apply
• Offeror may require offer to be accepted by some specific conduct (usually
unique, not part of person’s normal routine, and offeree must respond as
directed)
o Unilateral contract – when nature of contract itself requires actual
performance of the contract as method of acceptance, e.g. offering of
reward
• Silence – general rule is that silence by itself won’t be construed as
acceptance
o person in receipt of goods isn’t required to e.g. return goods that are
sent by marketers (who say that if you don’t return it, you’ve bought it)
 However, use of product affirms contract; store for a time, and if
not reclaimed by marketer, get rid of them
o Only when there is pre-existing business relationship will silence be
appropriate acceptance
• Post-box rule – exception to rule that acceptance must be communicated to
be effective
o Where use of mail/post is reasonable, acceptance is effective when and
where posted
o Only applies where it is reasonable to respond by mail
 When offer is presented another way, past dealing b/w parties,
nature of subject matter, are all important factors in determining
if response by mail is reasonable
 Appropriate means of acceptance should be specified in offer
o Entores case – when telex and other forms of instantaneous
communication are used, no need for post-box rule
 When fax is used, acceptance is only effective when and where
received by offeror
o Today, restricted to use of postal service, telegrams, and possibly
couriers
o Since exception, no indication that rule will be applied to other forms of
communications b/w parties as they bargain
Consideration
• Consideration – exchange of promises/benefits required
o In bargaining model, both parties must get some benefit from deal
(e.g. money, service, goods)
o Not necessary for consideration to actually change hands at time of
acceptance; must make commitment to give the other some form of
consideration pursuant to agreement (i.e. exchange of promises)
• Gratuitous promises – one-sided promises where one party promises smt for
another and not expect anything in return o not legally enforceable – i.e. once gift is given, giver can’t force its
return; promise to give such a gift that can’t be enforced
• consideration must be specific – sometimes difficult to tell whether where has
been exchange of consideration
o promise to pay “something” or a “reasonable price” not good enough –
no specific commitment
o exception – services requested
 based on equitable principle of quantum meruit, requester is
obligated to pay a reasonable amount for services delivered
• Consideration need not be reasonable, but must be legal, possible, and have
some value
o E.g. paying to bring smb back from death, do smt illegal, return
friendship/affection
o If transaction is grossly one-sided, may support allegation of fraud or
claim of incapacity
• To determine consideration, easier to look at price to be paid rather than
benefit to be received
o By agreement, both parties must pay a price – not just money but
other things, e.g. tiem given up
• Past consideration – where benefit has been given before deal is struck, can’t
be part of exchange; “past consideration is no consideration”
• Gratuitous promises
o If there is existing legal relationship/obligation that parties want to
change, can be changed by agreement, but there has to be
consideration on both sides to support change
o Reliance upon one-sided promise (i.e. not binding to promisor) may be
used as a defence
o Most jurisdictions have passed legislation to effect that if creditor
agrees to take less than full satisfaction of a debt, and in fact take the
money, they can’t turn around and sue for remainder, debt is settled;
taking less in satisfaction of a debt made binding by statute
• Exceptions
o Promissory estoppel - In the law of contracts, the doctrine that
provides that if a party changes his or her position substantially either
by acting or forbearing from acting in reliance upon a gratuitous
promise, then that party can enforce the promise although the
essential elements of a contract are not present.
 Certain elements must be established to invoke promissory
estoppel. A promisor—one who makes a promise—makes a
gratuitous promise that he should reasonably have expected to
induce action or forbearance of a definite and substantial
character on the part of the promisee—one to whom a promise
has been made. The promisee justifiably relies on the promise. A
substantial detriment—that is, an economic loss—ensues to the
promisee from action or forbearance. Injustice can be avoided
only by enforcing the promise.
 This defence is rarely available since promisor who has to sue